Brent Reverses Losses After EIA Forecasts
Crude oil reversed early losses on Tuesday, popping higher after the Energy Information Agency raised its price forecast for Brent, which overwhelmed earlier concerns about faltering global growth.
Oil prices found some support from worries over increasing tension in North Korea and a stalemate in talks between Iran and Western nations, raising fears of a possible disruption to fuel supplies from the Middle East. In addition, the EIA hiked its forecasts for Brent crude to $108
Brent crude futures last rose by more than $1, vaulting to $105.77 per barrel, still within a $2-range.
U.S. crude futures rose by nearly $1 to $94.29 per barrel.
Both crude contracts strengthened earlier on Tuesday after news of lower-than-expected Chinese inflation which could help bolster demand in the world's second biggest oil consumer.
China's annual consumer inflation eased to 2.1 percent in March from 3.2 percent in February, while producer price deflation deepened, data showed on Tuesday.
But the short-covering rally quickly petered out and analysts said further losses could be in prospect.
"With oil stocks so high, supply improving and the outlook for oil demand so uncertain, there seems to be little basis for a strong, sustained rally," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
Brent has fallen from a peak above $119 at the beginning of February, with nearby North Sea crude futures bearing much of the pressure as investors switched into other assets.
The prompt Brent futures contract slumped last week to a discount below the second month for the first time in nine months, throwing the front of the price curve into "contango".
Brent's premium over U.S. light crude, also known as West Texas Intermediate or WTI, has also narrowed to about $11 from $23 over the last two months.
Analysts say the Brent-WTI spread could narrow further as European concerns weigh on Brent, while the start-up of a new pipeline will alleviate a glut of crude at the Cushing, Oklahoma, hub for U.S. oil, and keep the U.S. crude contract well supported.
Political tensions could help support prices.
North Korea has nearly closed its last major project with its southern neighbour, fuelling speculation it may test a nuclear weapon or launch a missile, in a crisis that has become one of the most serious since the Korean War ended in 1953.
Iran's dispute with the West over its nuclear programme showed no signs of dissipating as weekend talks ended without a resolution, although Western diplomats said there were enough grounds to continue the dialogue.
Oil markets await U.S. inventory data for the week ended April 5. Data last week showed an inventory build last seen in 1990, dragging oil prices down to an eight-month low on Friday.
A Reuters analysts' survey showed crude stockpiles were expected to rise by 1.5 million barrels.
Data from the American Petroleum Institute is due on Tuesday, while the Energy Information Administration will release its data on Wednesday.